Money Matters
A majority of American adults are considered financially illiterate. According to the TIAA Institute-GFLEC Personal Finance Index, the financial literacy rate has held around 50 percent for the past decade. In 2023 and 2024, the rate dropped to 48 percent where it remains today.
Young Americans suffer even worse rates of financial competency. Generation Z, for example, has the lowest financial literacy of any generation. While Gen Z workers will make up a quarter of the U.S. workforce by 2025, more than one-quarter of that generation reports lacking confidence in their own financial knowledge.
Their sentiment is evidenced by hard data. According to researchers at Stanford, most Americans cannot answer three basic multiple-choice questions related to financial decision-making. These questions were designed to measure the financial literacy of respondents. You can take the quiz yourself below:
Q1. Understanding of interest rate (numeracy)
“Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow?”
1. a) More than $102 (correct)
2. b) Exactly $102
3. c) Less than $102
4. d) Do not know
5. e) Refuse to answer
Q2. Understanding of inflation
“Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, would you be able to buy?”
1. a) More than today
2. b) Exactly the same as today
3. c) Less than today (correct)
4. d) Do not know
5. e) Refuse to answer
Q3: Understanding of risk diversification
“Do you think that the following statement is true or false? ‘Buying a single company stock usually provides a safer return than a stock mutual fund.’”
1. a) True
2. b) False (correct)
3. c) Do not know
4. d) Refuse to answer
Could you answer those questions correctly? If you got all of them right, then you are in a small minority of Americans – only about a quarter of respondents answered all three questions correctly.
Experts contend that with the increase of technology in recent decades, Americans are becoming farther removed every day from the nuts and bolts of their own personal finances. Think of when you had to do arithmetic in grade school, before finding out about the invention called a “calculator.” Today, we not only have access to a calculator on our phones, we have access to applications that can do everything from calculating our interest rates and to managing our stock portfolios. Artificial intelligence is even being used by roughly two-thirds of millennials and Gen Zers to get help them with personal finance decisions and tasks.
But even beyond the management of our money, the currency itself seems farther removed from our sight. Today, only 3.5 percent of American consumers will use cash for all their purchases in 2024. Less than 20 percent will use cash for at least half of their purchases. Plus, these rates continue to decline rapidly every year. The number of cash-only consumers declined by nearly a third in just the last two years alone.
I don’t mention this as a criticism of technology. Convenience can be a wonderful thing. However, I would simply caution that there is truth in the old adage, that when something is “out of sight,” it’s probably “out of mind.”
Regardless, technology is not completely to blame for our declining financial literacy. Education must play a role. According to Ramsey Solutions, only 26 states currently require students to take some kind of stand-alone personal finance course as a graduation requirement, with varying levels of implementation and curriculum depth. You can view the state-by-state breakdown on their website.
Are we setting up our kids for failure if they don’t leave school with the basic knowledge necessary to make informed financial decisions and to engage effectively in the marketplace? Absolutely. Yet, the damage doesn’t stop with the individual. If we fail to educate young Americans about these financial topics, then we are also setting our society up for failure as well.
Despite all the cultural and political issues debated in this year’s election cycle, the economy outranked them all in the minds of voters. President-elect Trump won, in no small part, because he won the trust of voters to turn the Biden/Harris economy around.
I think this is an important factor in relation to financial literacy for a few reasons. First, I would contend that financially literate individuals are more likely to vote with economic considerations in elections. I have no data to support this, but it is common sense that individuals generally vote for their interests. Thus, I would contend that Trump likely won over many individuals who were financially literate and could understand the consequences of the Biden/Harris administration’s failed economic policies.
However, given the number of Americans who are financially illiterate, it is just as likely that many who lack financial education still went and voted for Trump and Republicans based on economic concerns. Why? Because they could detect the impact of the Biden agenda on their pocketbook and at the grocery store for themselves.
As conservatives, we like to talk facts. Liberals tend to play to feelings. In this election cycle, they both happened to line up for Republicans. Sadly, a quick look at history can tell you that the facts and feelings facing voters don’t always align in our favor.
Because of this, we must not only focus on better educating Americans on financial matters for their own personal empowerment, but for the sake of our democratic process. The more voters we can educate to understand the economics of their own home, then the more voters we will have engaged in the process who can look beyond the mainstream media talking points to see the facts behind the economic policies advanced by both sides of the aisle.